Reducing Customer Limits and Cutting Interest-Free Installments... Credit Card Companies Tighten Their Belts

Reduction in Usage Limits and Interest-Free Installments
Procurement Interest Rates Still Soaring... Delinquency Rate Concerns Rise as Well

While managing customer credit limits, credit card companies are also operating with reduced interest-free installment periods. With procurement interest rates still soaring and concerns about delinquency rates growing, they appear to be focusing on managing their reserves in preparation for an uncertain business environment next year.

According to the industry on the 9th, some credit card companies are adjusting customers' credit limits. A representative from Card Company A said, "We regularly manage limits according to customers' credit status," adding, "It's not on a large scale, but recently we have been managing more tightly." Since the end of last year, as procurement costs surged, card companies have not drastically lowered limits suddenly but are cautiously managing them. Card companies can review the appropriateness of a member's credit limit at least once a year based on disposable income calculated from income, assets, and debts.

The interest-free installment periods are still being operated in a reduced state. According to the industry, among the eight major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, BC, Woori, Hana), only three?Shinhan, BC, and Woori Card?offer up to 6 months of interest-free installments. Even these are limited to certain sectors such as hospitals, electronics, and airlines. Until November last year, seven card companies except Samsung Card supported 6 to 12 months of interest-free installments, but as procurement interest rates surged, card companies significantly shortened the interest-free installment periods at the beginning of this year.

Since the interest rates on specialized credit finance bonds, a major funding source for card companies without deposit functions, are still soaring and concerns about delinquency rates are emerging, they seem to be focusing on managing their reserves. According to the Korea Financial Investment Association, the interest rate on specialized credit finance bonds (AA+, 3-year maturity) was 4.777% as of the previous day. After rising to the 6% range at the end of last year, it dropped to the 3.8% range around June this year but is now trending upward again, approaching the 5% level. To reduce procurement costs, they are also focusing on issuing short-term bonds with maturities under one year, which have relatively lower interest rates. According to the Korea Securities Depository, the issuance amount of card bonds with maturities under one year in September was 750 billion KRW, a 59.6% increase from the previous month.

Concerns about delinquency rates continue. The average delinquency rate as of the end of the third quarter for Shinhan, Samsung, KB Kookmin, Hana, and Woori Card, which announced their third-quarter results this year, was 1.34%, up 0.53 percentage points compared to the same period last year. Hana Card's diesel-related delinquency rate reached as high as 1.66%. The industry views a delinquency rate of 2% as the manageable level for card companies.

Given the uncertain business outlook next year, card companies are expected to tighten their belts further for the time being. An executive from a card company explained, "Due to procurement costs, even if consumption increases, profits do not rise," adding, "With the business outlook for next year also uncertain, there is a particularly conservative atmosphere toward management."